Ford, GM and different automakers face 50% revenue stoop subsequent 12 months, UBS analysts say

Shares of Ford and Basic Motors took a beating Monday as outlook for the trade darkened additional with at the least two Wall Road analysts predicting earnings will fall steeply subsequent 12 months. 

Earnings for U.S. and European automotive firms are set to drop by half subsequent 12 months as weakening demand results in an oversupply of autos, UBS Group AG analysts led by Patrick Hummel wrote in a observe on Monday. In the meantime, RBC Capital Markets analyst Joseph Spak mentioned 2023 estimates for the sector must “transfer materially decrease.”

Ford shares sank 7.8% to $11.25 in New York, whereas GM shares dropped as a lot as 5.6% to $31.74. Monday’s decline provides to an already tough 12 months for the 2 carmakers, whose shares have tumbled greater than 45% to date, as buyers involved concerning the many challenges of the trade — together with supply-chain shortages, rising prices and a cash-strapped shopper — exited the shares.   

“Demand destruction is not a obscure danger, however has began to develop into a actuality,” UBS analysts mentioned. They downgraded their inventory rankings on Volkswagen AG, Basic Motors Co. and Renault SA to impartial and lower Ford Motor Co. to promote. 

A 3-year run of “unprecedented” pricing and margins is about to finish abruptly, with a glut of vehicles starting to emerge as quickly as three months from now, the analysts added. 

For electric-vehicle maker Tesla, whose third-quarter deliveries didn’t match as much as expectations, each UBS and RBC analysts struck a extra benign observe. UBS sees the Elon Musk-led firm persevering with its “aggressive” development via chopping costs and leveraging prices, whereas RBC’s Spak mentioned it is rather well-positioned mid-term because the low-cost EV supplier. 

Nonetheless, demand developments will likely be a key merchandise to look at for Tesla as properly, Spak added. Tesla shares have been down 1.5% at $219.79.

A number of threats confront the trade, with strained shoppers looking for to downgrade and rising inventories that can depart automakers unable to cross on inflationary pressures, the UBS analysts mentioned. In September, Ford warned of how rising prices have been affecting its earnings, prompting its inventory to plunge. European auto shares have surrendered their post-pandemic positive aspects.

The nearer time period outlook is extra optimistic, with the third quarter anticipated to be one other robust one for many producers, the analysts wrote. Some firms could present improved margins, with Mercedes-Benz Group AG amongst those who might improve their forecast. VW, BMW AG and Ford are prone to present a adverse earnings pattern.

Nevertheless, the main target will likely be on commentaries for the remainder of the 12 months and 2023, analysts from each UBS and RBC mentioned. Traders are prone to overlook excellent news as they concentrate on the headwinds mendacity forward for the sector, UBS analysts added.

UBS favors automakers with luxurious publicity, like Mercedes-Benz, as a result of increased resilience of higher-income family spending, and elements suppliers with a dominant market place and pricing energy, resembling Autoliv Inc. and Valeo SA.